Government Debt as the Integral Portfolio of Assets and Liabilities Generated by Debt

Article excerpt

Introduction

The adequate investment portfolio was selected to reach the main objective of the paper, namely, to prepare the maximization scheme of net utility for the debtor, generated by government debt, and using the integral portfolio model of asset and liability management to apply the scheme in Lithuanian conditions (Rutkauskas 2006).

In this paper, the debt category is analysed, which as a financial instrument (Landon, Smith 2007; Martin 2009; Pan, Wang 2012) at its basic content formation moment is contemporary with money as trade tools' origin; it has invaluable merit in developing division of labour as the most effective all-time economic means. Indeed, the importance and evolution of division of labour problem achieved the key attention of the scientific thought of economics since Plato to Friedrich A. von Hayek (The Concise Encyclopedia of Economics ... 2013). Intensive development of the trade, determined by the division of labour necessity (Pridotkiene, Dapkus 2011; Bruneckiene, Paltanaviciene 2012), has been the driver behind the abundance and improvement of financial relations and instruments. The success of the most impressive contemporary phenomenon--globalization --highly depends on the success of division of labour from the territorial as well as technological points of view, and on successful trading efficiency as well as perfection of the attendant system of financial instruments (Stulz 2005; De Santis, Gerard 2006; Mishkin 2007; Pekarskiene, Susniene 2011).

Etymology of debt states that the English word "debt" came from Latin "ebere" (to owe) somewhere in the XVIII century. However, there is no doubt that trading, which transformed 5000 years ago, has been using the idea of trust (credit--trust, creditum--loan) in the sense that it is possible to trust the promise to pay for goods after their delivery.

In finance, debt is a means of present use of the purchasing power receivable by the debtor in the future, maybe even far before it has been earned. Some companies and corporations use debt as part of their overall corporate finance strategy (Bradley, Chen 2011; Norvaisiene 2012; Zhan, Zeng 2012).

Although in the act of debt formation the debtor is assumed to be the primary side assuming the risk, however, a debt transaction can take place only under the condition of a possible bilateral benefit (Bruche, Naqvi 2010). In this paper, the main attention will be paid to the borrower (debtor), attempting to not only realize benefit possibilities, but also circumstances applicable for borrowing in situations when a debt increase not only becomes risky but can also become less useful in cases of a big guarantee, which is not only because the debt as such was unsuccessful, but also because of its inadmissible enormous growth that results in the loss of the possibility by a debtor to use it efficiently even under standard borrowing conditions.

The paper reveals the attempts of the authors to ground the management principles of the debt, the emerging of which is marked by the possibilities of uncertainty, when the existence of uncertainty is evident in forming costs of the debt, as well as in creating the value using debt funds.

1. Debt growth rate and related problems

As division of labour is the most important economic tool in the international context, the balance of needs and possibilities of all the subjects is a particularly important instrument of economic development management in a particular country. Only properly composed monetary and fiscal policy could foster discussion about the guarantee for sustainable economic growth and the most effective utilization of national disposable resources. (Muscatelli et al. 2004; Kalyuzhnova, Nygaard 2009; Canzoneri et al. 2010; Zvirblis, Buracas 2010; Bartolomeo, Giuli 2011; Asici 2013).

However, in the paper, the authors confine themselves to the creation of theoretical optimization model of government debt acquisition means and forms of use. …